Wednesday, January 05, 2011

An American Airlines Boeing 757-223 landing at...Dogfight Erupts in Plane Ticket Sales


A battle to reshape the way airline tickets are sold escalated Wednesday, in what could become an industry-wide showdown between carriers and middlemen.
In a retaliatory move against American Airlines, Sabre Holdings Corp., a middleman for many carriers' seats, said it is raising the fees it charges American to distribute its fare information and sell its seats through thousands of travel agents.
Sabre also said it will display American's flights less prominently than rival airlines in its vast booking system.

The jab follows efforts by American, the third-largest U.S. airline by traffic, to sell more of its tickets directly to consumers, a strategy designed to cut costs and give the airline more opportunities to court customers. As a result, the carrier, a unit of AMR Corp., has been butting heads with online travel agents as well.

Sabre is a breed of intermediary known as a "global distribution system," or GDS, which consolidates fare offerings from hundreds of airlines to share with travel agencies. For years, many airlines have paid these intermediaries to channel the bulk of their tickets to customers. Closely held Sabre, based in Southlake, Texas, owns the largest GDS.
The dust-up could spread to other airlines and intermediaries in the coming months as more third-party contracts come up for renewal and carriers seek to gain more control to boost profit margins.

"There's going to be a shoot-out in the airline distribution corral," predicted Henry Harteveldt, a travel industry analyst at Forrester Research.

Such disputes could make it increasingly difficult for consumers to comparison shop as fewer airlines funnel their offerings through common platforms. Delta Air Lines Inc., the No. 2 U.S. airline behind United Continental Holdings Inc., last month decided to stop supplying seat inventory to three small online agencies.

Several major online travel agents are owned by the same companies that own GDS operators. Orbitz Worldwide Inc. is 48%-owned by Travelport Ltd., a major GDS operator. Sabre owns Travelocity, a big online travel agent.

Before Christmas, American pulled its fares from Orbitz. Another major online travel agency, Expedia Inc., yanked American flights from its website on New Year's Day after they also failed to settle on new terms.

American Airlines currently sells about two-thirds of its seats through outside parties. It spends about $1 billion annually on ticket distribution.

Expedia lashed out at American last weekend for trying to replace the distribution model with the direct-connect network that American has developed in recent years to hook up directly with travel agencies. It called American's push "anti-consumer'' and "anti-choice,'' arguing costs would jump for travel agents and there would be less pricing transparency for consumers.

American said it remains in "active discussions'' with Expedia and Orbitz and that it hopes to reach deals even as it tries to change how tickets are sold. The airline also said Wednesday it continues "to work in good faith'' with Sabre.

Sabre wasn't always a nemesis: It used to be a unit of American Airlines, created back in the 1960s to help travel agents. Sabre, which was spun off from AMR in 2000, was acquired by private-equity firms Silver Lake Partners and TPG in 2007.

Tensions between airlines and GDS providers have been rising for a while. Giovanni Bisignani, head of the International Air Transport Association, an umbrella group for global airlines, called GDS "leeches" in a speech last summer.

GDS providers say they provide a valuable service to airlines and consumers at a competitive price. Sabre estimates GDS fees make up about 1% of overall costs at many airlines.

New technology is pressuring the GDS providers, but they wouldn't be easy to replace. Sabre and others manage webs of complex and rapidly changing information provided by the airlines, including the number of seats available on flights all over the world at any given moment and the fares at which they are offered. Individual airlines don't possess that breadth of information.

Global distribution systems typically receive about $3 from airlines for each leg of a domestic flight they help book and share some of that money with travel agencies.

American, based in Fort Worth, Texas, is pushing travel agencies to bypass GDS and connect directly with the airline. Airlines make much of their money now on separate fees charged to consumers for baggage and other services. Selling tickets directly gives them opportunities to upsell to consumers, offering special deals or upgrades along with a ticket purchase. Airlines say tailoring such offers to consumers is more difficult through a third party.

Other major U.S. airlines largely have stayed quiet during the escalating war between American and its distributors. American has more contracts expiring earlier with GDS providers and travel agencies than many rival airlines, placing it at the front of the line.

But many big airlines increasingly are eager to cut distribution costs and steer more business to their own websites. Several have spent heavily in recent years to refurbish those websites and boost their offerings and draw more traffic.

Global airlines such as American risk reaching fewer potential customers by going it alone. Much of their revenue comes from purchases by corporate travel management companies, which rely on GDSs to book tickets.

A handful of U.S. airlines already bypass intermediaries to sell almost all of their tickets directly to consumers. That list includes domestic discounters Southwest Airlines Co. and JetBlue Airways Corp. But they remain exceptions and their share of corporate customers lags rival carriers.

American Airlines' contract with Sabre expires in September, but Sabre said the higher booking fees for American and the airline's lower placement in Sabre's distribution system is effective immediately.
Sabre has been in talks with American about renewing the contract but "to date the discussions have not been productive,'' Chris Kroeger, a senior vice president at Sabre, said in an interview.

Several travel groups have criticized American for trying to weaken common GDS distribution channels.

"Business travel buyers will ultimately foot the bill for marketplace fragmentation caused by airline initiatives that push the travel distribution marketplace in the wrong direction—away from transparency and competitiveness and toward confusion and higher costs,'' Mike McCormick, head of the National Business Travel Association, said in a statement Wednesday.

—Susan Carey contributed to this article.

Write to Mike Esterl at

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